The world’s largest retailer, Walmart, is now a force to reckon with in India. How it will run the show in Asia’s third-largest economy is anybody’s guess as of now. A look at its history and culture could help decode what India should expect from Walmart.
On May 09, Walmart acquired a 77% stake in India’s largest homegrown e-commerce firm, Flipkart, for a massive $16 billion. This comes 11 years after the US-headquartered company made its India debut, but failed to take off due to restrictive government policies.
Walmart remains a little-known entity to most Indians. So, Quartz reached out to Charles Fishman, an American journalist who has closely observed the company for 15 years now, to get a sense of what makes Walmart such an influential company.
In 2006, Fishman wrote The Wal-Mart Effect: How The World’s Largest Retailer Really Works, a bestseller that went on to become a standard for understanding the company. Edited excerpts from an email exchange about Walmart’s ideology, its strengths, and how it can impact India:
If you had to sum up Walmart’s journey in the US briefly, what would you say?
Sam Walton, the founder, set Walmart (in 1962) on that course with just two core ideas: Sell what customers want, and what they use every day; and keep the costs of your company low so that you can sell at prices—every day, without specials—just a little bit lower than everybody else. Those two principles have, quite literally, driven every decision Walmart has made.
In the last decade, Walmart has become a huge force for corporate sustainability, for reducing energy use and packaging, and for using renewable energy and reducing greenhouse gases. Why? Because, while all those things are good for the environment (and for Walmart’s image), they also save money.
Do you think Walmart has done enough to revamp itself for the e-commerce era?
Short answer: Not yet. But Walmart is running fast to catch up.
Here’s the remarkable thing: Amazon.com started its business in 1995. Walmart’s online site, walmart.com, was started in the year 2000. At the time, Walmart was number two on the Fortune 500, a list of the world’s largest companies. So you had a tiny startup selling books, very quietly taking on the second-largest company in the US. And yet, here we are, 18 years later, and Amazon.com’s online merchandise sales are 10 times the size of Walmart’s online sales.
Walmart has been struggling to figure out how to sell to its US customers online. At one point recently, the e-commerce division of Walmart had three different CEOs in two years. But in the last three years, the new Walmart CEO, Doug McMillon, has revamped the e-commerce strategy. He has bought some important US companies and he hasn’t “Walmartized” those acquisitions. He has tried to use the culture of those companies to teach Walmart how to do e-commerce right. Walmart is a relentless innovator.
What according to you is Walmart’s biggest strength?
Odd as it may seem, Walmart is a relentless innovator. The company’s stores look just like ordinary big-box stores, but inside retail, Walmart has changed everything, like the way products are packaged and displayed, the way data about sales is analysed (Walmart analyses sales for every product category in the US every single hour), the way its warehouses run, the way trucking systems operate, and even the way trucks themselves operate, doubling the gas mileage of tractor-trailer rigs in the US. Walmart introduced 24-hour stores in the US. It was the first to introduce the idea of stores that sell blue jeans and athletic socks and toys alongside groceries. And that’s just a slice.
Walmart never stops asking things like, “are we selling the right thing, in the right package, in the right place in the store? Are we pricing it right, is the supplier making it right?” The innovation all goes to keeping prices low.
How is Walmart as an employer?
In the US, Walmart is not regarded as a particularly good employer. The wages it pays are modest, the work it offers is hard, and its stores tend to be a little thinly staffed, which affects the morale of workers, and service for customers. It’s “just a job” for most people. On an average, half of Walmart’s US employees quit every year.
But, they have raised starting wages at all stores to $15, which is well above the US minimum wage. And they have added employees to stores to improve the experience. Those are very expensive initiatives, and the ideas of McMillon.
What is Walmart’s working culture like?
Walmart’s work culture is an odd blend. In the US, there are control centers at headquarters in Bentonville that can see if a single freezer door at a single Walmart in Houston or Miami has been left open too long. I don’t think Walmart will change the work culture of Flipkart.
But Walmart is also famous for asking front-line employees to come up with new ideas or suggesting products that competitors sell, and Walmart should sell .
In the world of e-commerce at Walmart, my sense is that the culture is not that different from other digital companies—except that in e-commerce, Walmart is the underdog. That gives the e-commerce side a little extra pressure, but also a little extra motivation.
I don’t think Walmart will change the work culture of Flipkart and its employees, at least not in the first few years. Whatever Flipkart is like to work with, for now, it will continue to be mostly like that going forward. The changes will be small and incremental.
Will Walmart and Amazon competing head-on be a good thing for India or bad?
It will be both good and bad for India.
If you’re a consumer, it won’t be just good, it will be great. There will be a real effort to woo customers, and to keep them. If you’re a consumer, it won’t be just good, it will be great.
If you’re a company in India that makes products for consumers, this competition will be hazardous. Both companies will be squeezing supplier companies to offer the best possible deal to them. So while the business could be big in total volume, the profitability could be tiny or non-existent.
If you are a retailer in India, selling the same things as Amazon and Walmart, the next year to three years will be very hazardous. You can’t ever beat Walmart or Amazon on price. What you can do is offer things they don’t.
Can Walmart transform e-commerce in India?
Walmart has a strong history in developing economies of learning the local culture and the local needs and adapting to it. I think Flipkart and Walmart offer each other a fascinating and valuable partnership. Flipkart needs expertise in selling a whole range of merchandise—how do you sell groceries online?—and in logistics that Walmart is so good at.
Walmart has vast financial resources, as well. So, Flipkart won’t have to go looking for investors anymore.
Flipkart offers Walmart the online merchandising skill, which it still needs. Also, it offers an understanding of Indian consumers, in a way Walmart really understands: through data. Most importantly, this is Walmart’s chance to become a “store” for Indian consumers, working around the laws that prevent it from opening up physical stores. It’s Walmart’s chance to become a “store” for Indian consumers.
How do you think India fits in the scheme of things for Walmart?
India is a jewel of a market that Walmart has been eager to get into since 2007. It has a fast-growing economy, citizens who value education and who are rapidly rising in economic terms, all combined with a very basic consumer economy.
In the US, Walmart only grows about 2-3% a year. But in India, it could grow at 10-15%, something not many places in the world can offer.
If the Walmart/Flipkart acquisition works the way Walmart hopes, over time, Walmart/Flipkart wants to be a hugely important company in India.
If there was one thing you wanted to warn India about Walmart, what would it be?
Every lesson about Walmart has been learned. All you have to do is look at how Walmart has behaved in other countries and act accordingly.
You don’t ever “win” in a competition with Walmart. You may survive, but as a competitor, and as a supplier, you’ll always have to keep changing and innovating, because Walmart will come after your customers, and Walmart will come after your profit margins—because Walmart never gives up.
As a consumer, it’s important to remember that the lowest possible price isn’t always the best thing. Quality is as important as price, so you need to shop with awareness.
Walmart will do what’s in its interest. Taking care of Indian consumers, workers, and the Indian economy will be the job of the Indian officials. Walmart follows the rules, but Walmart will always push to get the best deal…for itself.